Wall Street sees big gains for Meta, if it keeps cutting costs — and we agree

Published Thu, Mar 9 20234:26 PM EST

Wall Street is bullish on Meta Platform 's (META) plan to reduce expenses in 2023, which analysts expect to lead to expanding profits at the social media giant and further upside for the stock. That's a view the Club shares, and we have high hopes for CEO Mark Zuckerberg's ability to deliver on Meta's "year of efficiency." Meta last month delivered a fourth-quarter earnings beat , while promising investors that 2023 would be guided by an ethos of efficiency to rein in runaway spending. Meta lowered its expenses outlook for the full year to a range of $89 billion to $95 billion, up from a previous estimate of $94 billion to $100 billion. Zuckerberg has also demonstrated he won't shy away from job cuts after over hiring during the Covid-19 pandemic. The Facebook and Instagram parent laid off 11,000 workers late last year, or 13% of total staff. Bloomberg reported Monday that Meta is planning to slash thousands of additional jobs as early as this week. Meta stock has rallied more than 50% since the start of the year. Analysts and investors — including at the Club — widely expect the stock could move even higher on the back of further headcount reductions. Wall Street's take UBS on Thursday called Meta its "favorite name in internet," citing higher earnings-per-share (EPS) potential as a result of costs cuts. Modeling by UBS analysts showed that "each incremental 2,500 employees laid off" at Meta could add 31 cents a share to 61 cents a share to the bank's 2024 EPS outlook. The analysts added that based on an 18-times price-to-earnings multiple, those job cuts could increase the share price by $5.50 to $10.99. UBS predicts Meta shares could climb as high $331 apiece. Jefferies this week said it sees upside to both Meta's earnings and share price once it "sheds some more weight," while calling further job cuts "warranted." Meta "grew its headcount by 20% in 2022, which led to revenue per employee declining 21%," the analysts wrote in a note Tuesday. Oppenheimer on Wednesday increased its price target on Meta stock to $235 per share, up from $220. Analysts at the bank said they expect beleaguered advertising revenue to rebound as investments in artificial intelligence (AI) ultimately allow for enhanced ad targeting across Meta's platforms. Oppenheimer increased its ad revenue estimates by 2% for 2023 and 2024. Meta — having recently joined Big Tech competitors like Microsoft (MSFT) and Alphabet (GOOGL) in launching its own large language model — is experimenting with how generative AI can be applied to text-focused applications like WhatsApp and image-based platforms like Instagram, with the aim of developing automated and curated content for ads. The Club take Meta needs to continue reining in expenses and put that money to work in furt